Cover Your Assets: An Insurance Primer for Small Businesses

Small business insurance policies to consider

A business owner’s policy, also known as a BOP, fits the general needs of many small businesses, but it may not cover everything. Here are some of the insurance policies your business should consider, organized in order from mandatory to situational to optional. 

General liability insurance (aka commercial liability)

• What it does: It protects a business against a wide array of lawsuits stemming from negligence. The policy usually covers the cost of defense, claims for bodily harm or property damage, personal injury and advertising damages (libel or slander).
• Mandatory? A business won’t be able to rent space or secure a loan without general liability insurance.
• Costs: Will rise with greater exposure to risk. A business with delivery staff buzzing around the streets will rate a higher premium than a small publishing house.

Property insurance

• What it does: It protects a business against damage to its workspace, from a fire, leaks or any type of property damage event.
• Mandatory? Again, property owners, management companies and mortgagors won’t let businesses occupy a space without it.
• Costs: Location can have an impact on the cost. For example, businesses in low-lying areas close to bodies of water will incur greater costs.

Worker’s compensation insurance

• What it does: This insurance provides medical care and compensation when an employee gets hurt on the job. The employee usually accepts compensation in exchange for forfeiting the right to sue the employer.
• Mandatory? States govern the worker’s compensation rules, so requirements will vary depending on where you do business.
• Costs: State laws and programs impact the respective costs of workers’ comp. Also important is the type of business — whether it’s more likely to have claims — as well as a company’s claim history. If a company makes frequent claims, its premiums will rise.

Product liability insurance

• What it does: Any company that makes, distributes or sells a product has exposure to product liability, because almost any product can cause some type of personal or property damage. This insurance helps protect against negligence, breach of warranty, product defects and faulty instructions. It also helps cover the costs of recalls.
• Mandatory? It is not mandatory, but it’s often included in a business owner’s policy. Alternatively, businesses that provide parts/supplies to large companies might be required to maintain the insurance as part of the contract.
• Costs: A maker of chainsaws will likely have far higher premiums than a pillow manufacturer.

Professional liability insurance (aka ‘errors and omissions’ or malpractice)

• What it does: Almost all service providers should consider the possibility that clients, patients or customers may litigate for perceived or real damages. The most common example of professional liability coverage is the malpractice insurance doctors carry, but architects, accountants, surveyors, realtors, lawyers and insurance brokers commonly carry similar policies.
• Mandatory? Not all professions require it, but many professional boards or associations require their members to carry this insurance.
• Costs: The expense varies greatly depending on the profession and a particular state’s tort law history. A certified public accountant (CPA) won’t shoulder nearly the burden that an anesthesiologist does.

Media liability insurance (aka ‘content creator’ coverage)

• What it does: Similar to professional liability insurance, business consultants, advertising and marketing firms, as well as your favorite podcasters are increasingly at risk of lawsuits from clients, customers and listeners. Consider it as the risk associated with being a content creator. For example, if a CPA makes a podcast and provides accounting advice in every episode, are they responsible for decisions every one of their listeners makes based on their podcast content? No, but consulting a lawyer to include smart disclaimers and purchasing insurance will protect their business and their podcast.
• Mandatory? No.
• Costs: This type of insurance is still relatively new. The costs depend on factors such as the size of your business, your reach (how many people consume your content) and the impact of your content.

Crime and fidelity insurance

• What it does: This policy protects employers from workplace theft and fraud.
• Mandatory? Not necessarily, but customers of certain businesses — art storage, for example — might require it.
• Costs: Businesses can mitigate costs by instituting strong policies and audit controls as well as running background checks on employees.

Business interruption expense insurance

• What it does: If a business becomes disabled for any reason, a business interruption policy covers financial outlays and reimburses lost profits until business as usual can resume operations.
• Mandatory? No, but highly recommended.
• Costs: Costs vary from $500 to a few thousand dollars per year. Businesses should make sure the policy includes extra expense coverage. This allows a business to rent an alternative location or lease equipment while waiting for the restoration of permanent resources.

Auto insurance

• What it does: If your business requires employees to spend a lot of time on the road — whether in their cars or vehicles belonging to the company — this insurance will be important.
• Mandatory? If the business owns vehicles, the insurance will be mandatory and will be identified as fleet insurance.
• Costs: Auto insurance costs vary by state.

Sprinkler leakage insurance

• What it does: This insurance could fall under property coverage, but every business should ask the question. A sprinkler leakage policy may be especially important for businesses dealing with important documents. Recreating documents is extremely expensive. And, of course, sprinkler showers will ruin all electronic and computer equipment.
• Mandatory? Not likely.
• Costs: The higher the replacement costs of documents or equipment, the more expensive the premiums.

Umbrella insurance

• What it does: Essentially, an umbrella policy serves as extra insurance beyond the dollar limits of a general policy.
• Mandatory? No.
• Costs: Relatively cheap because claims large enough to reach umbrella limits are rare.

Internet business insurance

• What it does: This insurance is vital for small- and medium-sized businesses that do business over the web, as it protects against security and privacy breaches. Businesses with less of an Internet presence might still consider a policy if they have multiple locations requiring e-mail and other digital transmissions.
• Mandatory? No.
• Costs: This type of insurance is still relatively new, such as media liability insurance, and costs depend on the type of activity and the value of the information being protected.

Home-based business insurance

A final word to the millions of businesses running out of private homes. All of the above insurance types may be vital to your business, depending on what you do. Don’t try to sidestep insurance simply because you operate out of the garage. Your homeowner’s insurance almost assuredly doesn’t cover you. You may have more at stake, especially since losing a home to a work-related lawsuit might prove catastrophic.

What to know about getting insurance for your business

But what insurance do you need? There’s no definitive answer to that, but it’s probably more than you think. Here are a few places to start.

Seek out an insurance broker or agent

Ron Reitz, president of Quality Claims Management Corporation, a national public adjuster firm that works on behalf of the insured to maximize claims, urges businesses to tell their insurance agent everything they can about their business. “The broker is your friend,” he said. “Make sure they’re part of the process and be honest with them.”

Look for insurance agents and companies specializing in your industry, product category, region and/or service. Get the best advice from an insurance expert knowledgeable about your specific business insurance needs. Don’t settle for a general insurance agent who may not be familiar with the risks associated with your type of work.

Make an insurance review part of your annual planning 

Schedule time every year to review your insurance policies and compare them to your business’ current and short-term activities and plans. Moving offices, renting new storage, creating a YouTube channel, developing a new product or hiring your first employee are all reasons to check and update your insurance policies. Your insurance needs will grow and evolve as your business does, so make time to get everything up-to-date and covered.

Benefits of customizing your business insurance 

Each small business is unique. It operates within its own context, with a unique set of assets and challenges. When business owners make the time to review, select and customize their business insurance to meet their small business’ needs, they are laying a strong foundation to protect their hard work and vision for the future. 

Not every type of business insurance is right for your small business. Strategic small business owners know this; they seek out information from experienced insurance experts who serve businesses like theirs. They also understand insurance is a long-term expense, but more affordable than a business in ruins because it wasn’t properly insured. 

Patrick Egan contributed to this article. ​​Source interviews were conducted for a previous version of this article.